Two Promising Apple Plays you Might Consider Buying Now
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earlier this week, Fool analyst Evan Niu consolidated the views of various analysts on Apple’s (NASDAQ: AAPL) upcoming third quarter results, with almost all of them predicting a miss. As the Cupertino-based behemoth prepares to refresh its iPhone later this year, and the iPhone 4S nears the end of its life cycle, analysts expect iPhone sales to barely touch the 30 million mark in the to-be-reported quarter.
In addition, they expect the weakness to continue into the September quarter, the one in which Apple had missed last year. But after that, we would see a boom. The next iPhone would sell like crazy (I can bet on that) and Apple will be back to its best once again. However, there is another side to Apple’s expected miss in its next report.
Derivative plays getting cheap
As Evan rightly pointed out, the guessing game about Apple’s sales figures has been hurting its component suppliers, better known as Apple derivative plays. There are quite a few companies which are largely dependent on the iRealm for their bread and butter. And as the news of Apple’s probable miss spreads, these component suppliers are also bearing the brunt.
However, in my opinion, even their bashing isn’t here to stay for long and they would come good later on in the year. Remarkably, they have done decently so far this year but have been pegged back in the past three months. Let’s take a look at a couple of them.
Why Cirrus will reach the clouds…
Cirrus Logic (NASDAQ: CRUS) is the most definitive Apple derivative play, deriving 70% of its revenue from iDevices. The supplier of audio codecs for the iPad and the iPhone delivered a terrific quarter last time, which saw its shares gain almost 20% in two days. Also, the stock has been an outperformer this year, adding almost 60% to investors’ wealth.
However, Cirrus has been subdued over the last three months, delivering a meager gain of 5%. The stock was hammered almost 9% earlier in the week even though it did no wrong.
Cirrus will release its next report on July 30, and it’s expected to miss. But again, if you are an Apple and Cirrus bull, you would know that this is a lull phase for these companies. Cirrus is making preparations on a war-footing for the next iPhone and would see a sharp improvement in revenue from the beginning of the September quarter, i.e. July onwards. Hence, if Apple releases its iPhone in October, its component suppliers would be ramping up their production and sales in the current quarter. This will probably lead them, along with Cirrus, towards better top lines going forward.
…and Skyworks will give Cirrus company up there
Similar is the case with Skyworks Solutions (NASDAQ: SWKS), the supplier of radio frequency chips for iDevices. Skyworks breezed past estimates in its previous quarter and is up some 55% this year. However, it shares Cirrus’ plight over the last three months wherein it has lost almost 7%.
Like Cirrus, even Skyworks expects a significant jump in revenue for the September quarter onwards. Analysts expect that Skyworks will see windfall gains from the next iPhone release as it might have an improved standing in it. Research firm Charter Equity says that Skyworks might earn $3.60 for every unit of the iPhone sold, a lot more than $1.60 it currently makes out of every iPhone 4S.
In addition, Skyworks also boasts of the other smartphone giant, Samsung, as a customer. It had two slots inside the latest, and the fast selling, Samsung Galaxy S III. Thus, being in the books of the top two smartphone sellers on earth is definitely an advantage and Skyworks will hopefully make the most out of it in the future.
If you hold Cirrus and Skyworks already, there’s absolutely no need to freak out over their choppy performance over the last few months. In fact, you might consider buying more of them at these levels. As Apple ramps up production of the next iPhone, these two component suppliers will bask in glory later in the year. And if you are looking to play the Apple story around $50, Skyworks and Cirrus might just be the two stocks you need to take a look at.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Cirrus Logic. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.